Analysing the sustainability of procurement in family businesses: A study of measurable investments and practices based on ESG principles

Schmidt, Philipp Article Analysing the sustainability of procurement in family businesses: A study of measurable investments and practices based on ESG principles Junior Management Science (JUMS) Provided in Cooperation with: Junior Management Science e. V. Suggested Citation: Schmidt, Philipp (2024) : Analysing the sustainability of procurement in family businesses: A study of measurable investments and practices based on ESG principles, Junior Management Science (JUMS), ISSN 2942-1861, Junior Management Science e. V., Planegg, Vol. 9, Iss. 2, pp. 1485-1510, https://doi.org/10.5282/jums/v9i2pp1485-1510 This Version is available at: https://hdl.handle.net/10419/300587 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ Junior Management Science 9(2) (2024) 1485-1510 Junior Management Science www.jums.academy ISSN: 2942-1861 Editor: DOMINIK VAN AAKEN Guest Editor: ANNE KATARINA HEIDER Advisory Editorial Board: FREDERIK AHLEMANN JAN-PHILIPP AHRENS BASTIAN AMBERG THOMAS BAHLINGER MARKUS BECKMANN CHRISTOPH BODE SULEIKA BORT ROLF BRÜHL KATRIN BURMEISTER-LAMP JOACHIM BÜSCHKEN CATHERINE CLEOPHAS NILS CRASSELT BENEDIKT DOWNAR RALF ELSAS KERSTIN FEHRE MATTHIAS FINK DAVID FLORYSIAK GUNTHER FRIEDL MARTIN FRIESL FRANZ FUERST WOLFGANG GÜTTEL NINA KATRIN HANSEN CHRISTIAN HOFMANN SVEN HÖRNER KATJA HUTTER LUTZ JOHANNING STEPHAN KAISER NADINE KAMMERLANDER ALFRED KIESER NATALIA KLIEWER DODO ZU KNYPHAUSEN-AUFSESS SABINE T. KÖSZEGI ARJAN KOZICA CHRISTIAN KOZIOL MARTIN KREEB TOBIAS KRETSCHMER WERNER KUNZ HANS-ULRICH KÜPPER MICHAEL MEYER JÜRGEN MÜHLBACHER GORDON MÜLLER-SEITZ J. PETER MURMANN ANDREAS OSTERMAIER BURKHARD PEDELL MARCEL PROKOPCZUK TANJA RABL SASCHA RAITHEL NICOLE RATZINGER-SAKEL ASTRID REICHEL KATJA ROST THOMAS RUSSACK FLORIAN SAHLING MARKO SARSTEDT ANDREAS G. SCHERER STEFAN SCHMID UTE SCHMIEL CHRISTIAN SCHMITZ MARTIN SCHNEIDER MARKUS SCHOLZ LARS SCHWEIZER DAVID SEIDL THORSTEN SELLHORN STEFAN SEURING ANDREAS SUCHANEK TILL TALAULICAR ANN TANK ORESTIS TERZIDIS ANJA TUSCHKE MATTHIAS UHL CHRISTINE VALLASTER PATRICK VELTE CHRISTIAN VÖGTLIN STEPHAN WAGNER BARBARA E. WEISSENBERGER ISABELL M. WELPE HANNES WINNER THOMAS WRONA THOMAS ZWICK JUNIOR MANAGEMENT SCIENCE Anne Scharmann,Innovation Collaboration Between Family Firms and Startups: Insights from the German Construction Industry Anna Vitten, Comparison of the Preferential Treatment of Retained Earnings with the Option Model for Family Partnerships Abhishek Omprakash Singh, Impact of CSR on Firm Performance: The Moderating Role of Family Ownership in Individualistic & Collectivistic Countries Pia Doris Morrow, Unforeseen Succession -Identity Change Amongst Lateral Entrants in Family Firms Philipp Schmidt, Analysingthe Sustainability of Procurement in Family Businesses -A Study of Measurable Investments and Practices Based on ESG Principles Ludwig Marrenbach, Leveraging Credit Ratings Through Impression Management: An Exploratory Study of German Small and Medium-Sized Family Firms Ralf Ebner, Multiple Case Study Analysis on the Consequences of Mandatory Sustainability Reporting in Private German Family Firms Valerie Raiss, Growing Up Between Family and Business: Transmission of Values in the Socialization Process of Children in Business Families 1384 1414 1445 1464 1485 1511 1540 1567 Published by Junior Management Science e.V. This is an Open Access article distributed under the terms of the CC-BY-4.0 (Attribution 4.0 International). Open Access funding provided by WIFU and ZBW. ISSN: 2942-1861 WIFU-Special-Issue: Family Businesses and Business Families Volume 9, Issue 2, June 2024 Analysing the Sustainability of Procurement in Family Businesses - A Study of Measurable Investments and Practices Based on ESG Principles Philipp Schmidt WHU – Otto Beisheim School of Management Abstract Sustainability has gained considerable prominence in recent decades as the inevitability of change becomes increasingly apparent. Family businesses constitute a significant and influential part of the global economy. Therefore, they are pivotal in addressing the world’s sustainability challenges. Despite extensive research on sustainability in corporations and public firms, there remains a dearth of comparable data concerning sustainability in privately owned family businesses. Through qualitative interviews and cross-case analyses, this thesis investigates the procurement practices within family businesses, deriving comparative insights guided by Environmental, Social, and Governance (ESG) criteria. The findings evaluate family businesses based on the ESG framework, visualising the development and integration of sustainable practices into the procurement processes. The research highlights the indirect impact of sustainability on developing competencies that can confer a competitive advantage. Additionally, it sheds light on the potential financial benefits reported by family businesses that have implemented sustainability measures. Overall, the findings contribute to the existing academic research on sustainability in businesses and family business studies. Keywords: ESG; family business; performance-based assessment; procurement; qualitative interviews; sustainability 1. Introduction 1.1. Problem Relevance Sustainability is “(...) meeting the needs of the present without compromising the ability of future generations to meet their own needs” (Brundtland & United Nations, 1987, as cited in Keeble, 1988). This quote from the United Nations Brundtland Commission describes one of the critical challenges the I would like to extend my heartfelt gratitude to all individuals who have made valuable contributions to the completion of this academic endeavour. Firstly, I sincerely appreciate my supervisor, Prof. Dr. Nadine Kammerlander, for their invaluable guidance, expertise, and unwavering support throughout the research process. Your dedication and willingness to provide advice and share your knowledge have been instrumental in completing this study. I am also immensely grateful to the family businesses and interviewees who generously dedicated their time and shared their invaluable insights and information. Without their contributions, this paper would not have been possible. Their willingness to participate and provide valuable insights has enriched the findings and added depth to the research. world is facing today. Because of significant resource depletion caused by the extensive population growth and economic development, planet Earth is at the precipice of irreversible consequences. The two main drivers that are the underlying cause of the environmental problems are the world’s population, which has quadrupled over the last 100 years and the global economic output, which has 20-folded, estimates say (Grossman, 2013). On the verge of the problem lies the Earth’s depletion of natural resources. The majority of natural and renewable resources have been classified as over-used in the last decades (World Bank & FAO, 2009). Human activities such as industrialisation, deforestation, and mining have also played a significant part in the overuse of resources such as fossil fuels, timber, minerals, and water. Sustainability is a megatrend for the industry that has become reinforced in recent years, leaving the corporate world with the need to implement new business practices to stay competitive (Sheth et al., 2011). In the past decade, sustainable business practices have significantly increased interest. DOI: https://doi.org/10.5282/jums/v9i2pp1485-1510 © The Author(s) 2024. Published by Junior Management Science. This is an Open Access article distributed under the terms of the CC-BY-4.0 (Attribution 4.0 International). Open Access funding provided by WIFU and ZBW. P. Schmidt /Junior Management Science 9(2) (2024) 1485-15101486 Before the financial crises of 2007-08, there was a prevailing belief, as articulated by Milton Friedman, that the primary objective of businesses should be to maximise shareholder returns. However, the subsequent events revealed the inherent unsustainability of this approach. It became clear that specific organisations and individuals had neglected business ethics, resulting in crises encompassing the environment, ethics, and the global economy. These occurrences were a stark reminder of the need to prioritise ethical considerations within business practices (Boons et al., 2013). Especially the rise of public interest in sustainability topics accelerated the pressure on companies worldwide to develop a more socially responsible role (Gutberlet & Kern, 2007). In 2006, the United Nations report first mentioned ESG as a term (Dai & Tang, 2022). Since then, there has been a notable increase in non-financial reporting. During this period, the emphasis has shifted towards maximising the impact on the organisation’s stakeholders and the environment, not just the shareholders (Sandberg et al., 2022). ESG ratings are a set of objectively defined criteria that enable comparing companies based on their sustainable practices, as per Sandberg et al. (2022). These ratings have gained significant momentum in recent years, with ESG-themed investment portfolios estimated to be worth around $40 trillion, which attests to their growing importance in the investment community. Since its inception in 2006, ESG has gained widespread recognition as the only measure of a firm’s sustainability and social impact. This is evident in its adoption by businesses and its acceptance among governments worldwide (Dai & Tang, 2022). The COVID-19 pandemic has brought attention to ESG issues in supply chain operations, as the opacity of international supply chains revealed due to significant interruptions. Consequently, there has been a growing demand for supply chain due diligence and accountability. Thus, the German parliament passed the Supply Chain Due Diligence Act in 2021, the latest directive in Germany concerning the supply chain issues occurring during the COVID-19 pandemic. It mandates that companies assume accountability for any social and environmental problems that may arise during their operations (Dai & Tang, 2022). In addition, on January 5th, 2023, the European Union put the Corporate Sustainability Reporting Directive (CSRD) into effect, representing a recent instance of the enactment of sustainable legislation. This directive is a testament to the EU’s commitment to enhancing corporate sustainability reporting and disclosure standards. Today’s world is approaching and, in many cases, already surpassing the limits of the world’s natural resources to the extent that immediate action is necessary (Grossman, 2013). The responsibility to act extends to the economy, with businesses playing a crucial role in addressing these challenges. Companies that conform to ESG criteria and allocate resources towards long-term sustainable solutions can secure a sustainable competitive edge (Grossman, 2013). As French President Emmanuel Macron said: “Let us face it, there is no planet B” (Wentworth, 2018, p. 1). 1.2. Objective As aforementioned, the global population has grown significantly in recent decades, leading to a corresponding increase in demand for food and beverages (Shahjahan et al., 2022). In Europe, the food and drink industry is the largest manufacturing sector in terms of turnover and employment (FoodDrinkEurope, 2020). The industry is responsible for almost 26% of global greenhouse gas emissions and has a high usage of natural resources while facing social and governance issues throughout the supply chain. Moreover, the agricultural system prioritises maximum output, leading to soil quality degradation, water pollution and many other environmental problems (Sandberg et al., 2022). However, research on sustainability in the food and beverages industry has been limited thus far, mainly because of the industry’s complexity of regulatory restrictions and supply chain requirements (Sandberg et al., 2022). Recent academic findings have expressed the industry’s vulnerability to environmental hazards, like weather crises, as the impact of climate change has already led to a 3% reduction in global crop yield (Fróna et al., 2019). These risks are dangerous to the industry but, on the other hand, offer opportunities to promote social fairness and reduce environmental impact by integrating ESG measures into the supply chain. For instance, food waste is a significant problem in the food and beverages industry. Research has revealed that approximately 16% of all food waste occurs within its supply chain (Shand & Johnson, 2019). Family businesses are essential to the global economy and have an extended and traditional role in national economies. Globally, they account for about 80% of companies and often contribute a large share of the GDP in many countries (Buchanan et al., 2023). With a concentration of almost 80%, the percentage of family businesses in Germany is significant (Bergfeld & Weber, 2011). In contemporary society, family businesses are frequently referred to as more stable in times of crisis, possessing greater sustainability and maintaining a long-term focus compared to non-family-owned enterprises (Bauer, 2013; Machek et al., 2019). Given the significant role that family businesses play in national economies, research on this subject has been extensive. Despite research on various aspects of family businesses, such as the impact of succession, management, and ownership, sustainability, measured with ESG criteria, remains critically understudied. Sustainable supply chain management (SSCM) has been a highly productive area of research in recent decades, with a significant output on the topic (Carter & Easton, 2011; Carter & Rogers, 2008; Seuring & Müller, 2008). However, the link between ESG criteria and SSCM has received relatively little attention and is considered an understudied area, especially in family businesses (Dai & Tang, 2022). Furthermore, despite extensive research from academic literature on sustainability in family businesses, the findings do not present a consistent picture (Bauer, 2013; Olson et al., 2003). On the one hand, regarding sustainable business practices, research has found family businesses often exceed regulatory require- P. Schmidt /Junior Management Science 9(2) (2024) 1485-1510 1487 ments (López-Pérez et al., 2018). In contrast, other studies indicate that family businesses do not outperform non-family firms regarding sustainability (Chen & Hsu, 2009). As the public interest in sustainability has risen constantly, the urge to stand out in ESG reporting has become vital (Parida & Wincent, 2019). More than ever, sustainable business practices and communication are crucial factors in maintaining customer attractiveness and competitiveness in the economy today (V˘ at˘ am˘ anescu et al., 2021). As a result, a research gap in sustainable procurement was deemed evident, specifically in measuring sustainability in family businesses using ESG criteria. This paper seeks to establish a rating framework in which sustainable procurement practices are rated based on ESG criteria. The objective is to present a comparative perspective and facilitate the widespread adoption of sustainable practices (Seuring & Müller, 2008). The need to integrate sustainable business practices has been underscored (Ferreira et al., 2021; Le Breton-Miller & Miller, 2016). The degree to which sustainable procurement practices are established holds great significance, especially given the substantial representation of family businesses across various industries. Germany, predominantly composed of family businesses, provides a conducive environment for conducting research and contributing to the academic landscape of sustainability in family businesses. ESG criteria could be integrated as a measurement tool for assessing and deriving best practices and general assumptions on the sustainability of procurement in the German food and beverages industry, thereby offering a promising avenue for advancing research in the field. Exploration of the sustainable practices of family businesses holds promise for generating valuable insights and establishing a starting point for assessing sustainability in the family business landscape. The proposed research methodology entails qualitative interviews with eight German food and beverage family businesses, employing ESG criteria for meaningful comparisons. The selected industry has been chosen for its economic significance and to facilitate a more focused and comparable analysis. As a result, two research questions were formulated to guide the subsequent paper: (1) To what extent have German family businesses implemented sustainable procurement practices, measured with guidance from ESG principles? (2) What characteristics do family businesses possess that influence the implementation of sustainable procurement measures, and how can these characteristics be integrated into a framework for sustainable procurement? The thesis is organised as follows: Section 2 presents a comprehensive review of the relevant literature about the investigated topics. This literature review forms the basis for developing the research propositions. Section 3 describes the methodology employed in this study, with a particular emphasis on constructing the frameworks. In Section 4, the study’s findings are analysed, interpreted, and synthesised. Finally, Section 5 provides a detailed discussion of the study’s findings, its contribution to academic literature, the limitations of the study, and suggestions for future research. 2. Theoretical Background and Proposition Development Building upon the formulated research questions, the upcoming section offers a theoretical foundation for the topics under investigation. It will present a comprehensive overview of existing scholarly studies about sustainability in family businesses. Beginning with the definition of essential and central terms of this study, the focus will lie on academic research on family businesses in connection with sustainability in the procurement process. Finally, this paper will delve into SSCM, culminating in formulating two propositions to guide the qualitative data analysis and provide the reader with a clear research direction. 2.1. Definition of Terms The section provides comprehensive insights into the key terms utilized in this paper related to family businesses, the concept of ESG, and the relationship between sustainability, procurement, and family businesses. This section aims to enhance the reader’s understanding of the current academic research on the subjects under investigation through clear definitions and explanations. 2.1.1. Definition of the Term Family Business A century ago, the word “business” was equal to “family business”, as the vast majority of companies were familyowned (Aldrich & Cliff, 2003). According to Sharma (2013), families are two or more individuals related by blood or marriage and residing together while maintaining communication (Sharma, 2013). In this study, the term "family" refers to the individuals related by blood, adoption or marriage, following its conventional definition. According to Donaldson and Walsh (2015), a “business” is “(. . . ) a form of cooperation involving the production, exchange and distribution of goods and services for the purpose of achieving collective value” (Donaldson & Walsh, 2015, p. 188). Family businesses play a crucial role in the global economy. They are the world’s oldest type of commercial organisation and constitute a substantial portion of businesses worldwide. In Germany, for instance, family businesses make up nearly 80% of all organisations, highlighting their significant presence and importance in the country’s economy (Bergfeld & Weber, 2011). One distinguishing feature of family businesses is the inherent risk borne by the family itself. Research indicates that in 1996, family owners put over US$86 trillion of family assets at risk for the survival of their businesses (Olson et al., 2003). There is a lack of consensus and precision in defining the term “family business”, and a definitive and universally accepted description has not yet been established (Cano-Rubio et al., 2017). Thus, this paper makes use of the definition by Poza (2013) to describe family businesses. It "(...) considers family businesses to constitute P. Schmidt /Junior Management Science 9(2) (2024) 1485-15101488 the whole gamut of enterprises in which an entrepreneur or next-generation CEO and one or more family members significantly influence the firm. They influence it via their managerial or board participation, their ownership control, the strategic preferences of shareholders, and the culture and values family shareholders impart to the enterprise" (Poza, 2013, p. 5). All definitions of family businesses revolve around the family’s role in determining the firm’s vision and control mechanisms and creating unique resources and capabilities. The family’s involvement is often seen as a competitive advantage (Sharma, 2013). Extensive research has yielded significant findings, highlighting their advantages and disadvantages compared to non-family firms. These findings suggest that family businesses have unique strengths that contribute to their success (Tagiuri & Davis, 1996). One such characteristic are reduced agency costs due to the family’s involvement in the executive stage (Habbershon & Williams, 1999). On the other hand, next to creating a competitive advantage, the same characteristics can also pose significant risks to family businesses themselves (Sirmon & Hitt, 2003). Here, family involvement can be the potential for conflict between different groups of family shareholders. Research has shown that agency problems can be severe between controlling and non-controlling shareholders in family businesses (Ali et al., 2007; Le Breton-Miller & Miller, 2016). The distinctive capabilities and resources that family involvement provides to an economic entity were described by Habbershon and Williams (1999) as “familiness”. These are best understood through the lens of the resource-based view. This perspective emphasises the strategic significance of a firm’s resources and capabilities, which can be difficult for competitors to replicate or substitute. In family businesses, these resources and capabilities are often tied to the family’s involvement and control, precisely their human, social and financial capital (Ferreira et al., 2021; Poza, 2013). Financial Capital Financial capital has negative as well as positive attributes for family businesses. Since most shareholders in family businesses are family members, this approach fosters a longerterm perspective on achieving financial stability rather than pressure to deliver immediate financial returns or engage in short-term thinking (Le Breton-Miller & Miller, 2016; Sirmon & Hitt, 2003). This prioritisation of financial stability and long-term orientation stems from the goal of creating lasting value for future generations (Machek et al., 2019; Poza, 2013). A characteristic of family businesses is the desire to keep ownership and control without too much influence from external capital providers (Harith & Samujh, 2020). Focusing on long-term development and effective capital management can lead to limited financial resources and risk-averse investment decisions. Due to financial constraints, family businesses might face challenges in funding innovation initiatives, which are critical for staying competitive in today’s fast-paced business environment (Clauß et al., 2022). Furthermore, their strong attachment to traditional values and emotional ties to the business can hinder their ability to innovate and embrace change, resulting in negative implications for their long-term financial stability and socio-economic impact (Clauß et al., 2022; Machek et al., 2019). This may result in slower growth or missed investment opportunities for the family business (Machek et al., 2019; Sirmon & Hitt, 2003). There is, however, also a contradictory view on the financial independence of family businesses. The ownership family may allow them to pursue their vision without being constrained by economic considerations. This includes the ability to make social investments that may not yield immediate financial returns. The overlap of ownership and managerial responsibilities in family businesses can significantly reduce administrative costs and facilitate faster decisionmaking. Quick decision-making is crucial in the economic world, as missing out on specific investment opportunities can mean a disadvantage in competition (Poza, 2013). Furthermore, emphasising building a business for future generations leads to increased self-analysis, the ability to adapt to changes without losing momentum, and a greater focus on research and development. Human Capital Human capital refers to the skills, knowledge, training and relationships of the employees and other individuals involved. This term emphasises the importance of people as a critical resource for the organisation’s success (Habbershon & Williams, 1999; Sirmon & Hitt, 2003). Family businesses typically have a trust and value-based culture that stems from the close interpersonal relationships among family members. As a result, family businesses often have a more profound firm-specific understanding and stronger relationships with external stakeholders, providing them with a competitive advantage over non-family firms (Habbershon & Williams, 1999; Poza, 2013; Sirmon & Hitt, 2003). These practices lead to a "win-win" approach, prioritising the interests of all stakeholders, including society and other businesses (Le Breton-Miller & Miller, 2016). Conversely, it can be argued that maintaining strong and long-term relationships may pose a risk and impede the agility of family businesses, as personal relationships with external stakeholders may influence their willingness to embrace change (Donaldson & Walsh, 2015). Social Capital Social capital focuses on the relationships between the organisation and individuals. It consists of structural, cognitive and relational components, all of which are embedded in a family (Bingham et al., 2011; Sirmon & Hitt, 2003). Research shows the contrast between family-run and nonfamily firms, particularly regarding their heightened corporate social responsibilities (Bingham et al., 2011; Block & Wagner, 2014). It contends that family businesses frequently cultivate solid connections and alliances with their local communities and employees, increasing their influence on society and emphasising their social responsibility instead of prioritising profit maximization (Niehm et al., 2008). Family P. Schmidt /Junior Management Science 9(2) (2024) 1485-1510 1489 businesses’ distinctive features and competitive advantages have contributed to the perception of sustainable and longlasting economic entities (Bingham et al., 2011; Machek et al., 2019). 2.1.2. Definition of ESG In previous decades, management executives often prioritised business decisions that focused on maximizing shareholder value while disregarding environmental and social factors (Sandberg et al., 2022). As a result, the concept of ESG was initially introduced through a published report by the United Nations in 2006 (Dai & Tang, 2022). Since then, socially responsible investing has been a principle for decades. Still, the lack of specific performance measurement created a vast difference in approaches, thus creating more confusion and a lack of comparability (Boffo & Patalano, 2020). Bergman et al. (2020) have defined ESG as “(. . . ) a means by which companies can be evaluated with respect to a broad range of socially desirable ends. ESG describes a set of factors used to measure the non-financial impacts of particular investments and companies” (Bergman et al., 2020, p. 1). Over the past two decades, ESG has been widely adopted in the investment industry, as socially responsible investing (ethical or sustainable) has grown significantly (Dorfleitner et al., 2015). ESG ratings are widely recognized as an effective way of evaluating corporate social performance and have gained considerable importance for investors and company management over the past few decades. The ESG framework is predominantly used to assess companies and their potential financial performance, aiming to minimize risk by considering sustainable business practices. This investment philosophy prioritises long-term growth while recognizing the economic significance of creating financial return (Li et al., 2021). In recent decades, the assets under management considering ESG factors have grown exponentially. In the US alone, this represents 20% of all professionally managed assets, equivalent to US$11 trillion (Boffo & Patalano, 2020). Over the last 20 years, specialized rating institutions have developed ESG rating criteria, with ASSET4 being one of the most prominent providers of ESG ratings, owned by Thomson Reuters (Dorfleitner et al., 2015). The criteria have evolved and are not standardized, resulting in rating agencies using varying standards to evaluate companies. Nonetheless, this study is based on the standard criteria used by ESG rating agencies while acknowledging the existence of differences in their rating methodologies (see Table 1) (Boffo & Patalano, 2020; Escrig-Olmedo et al., 2019; Li et al., 2021). ESG scores are categorized into two main types: one type emphasises ESG reporting and the level of transparency demonstrated by companies in this aspect, while the other assesses the extent to which companies generate social returns in addition to financial returns, thus considering the social impact of potential investments (Boffo & Patalano, 2020). ESG measures are used in the investment industry to evaluate companies and businesses to improve their social, environmental and governance contributions and overall sustainability. Research suggests that considering ESG factors can enhance risk management, resulting in organisations’ more sustainable long-term performance (Boffo & Patalano, 2020). Despite this, academic literature has been divided in the past, being unclear about the effect of ESG ratings on the financial performance of businesses. Some suggest that higher ESG ratings are associated with better financial performance and can lead to a competitive advantage (Taliento et al., 2019). Deriving from that, ESG practices cannot only improve the sustainability of one’s business but also lead to higher long-term growth, thus, better financial outcomes (Kim & Kim, 2014; Sandberg et al., 2022; van Beurden & Gössling, 2008). In the long term, investments made with ESG criteria have resulted in positive outcomes for shareholders (Barnett & Salomon, 2006). On the contrary, academic literature has found a negative correlation between social responsibility and financial returns. However, sustainable policies and business practices should still be adopted to maintain good relationships with all firm stakeholders (Taliento et al., 2019). 2.2. Overview of the Current State of Research The ensuing discourse offers a comprehensive overview of the existing literature on sustainability in the context of family businesses. Family businesses possess specific characteristics that contribute to their positive relationship with sustainability (Berrone et al., 2010; Clauß et al., 2022; Ferreira et al., 2021; Le Breton-Miller & Miller, 2016). Furthermore, an overview of SSCM is provided. 2.2.1. Sustainability in Family Businesses Le Breton-Miller and Miller (2016) have identified specific unique characteristics of family businesses that contribute to their positive relationship with sustainability. As noted above, a notable characteristic of family businesses is their long-term orientation, emphasising their continuity for future generations. This long-term perspective fosters robust relationships with external stakeholders, which can be attributed to the historical resilience of family businesses (Berrone et al., 2010; Miller & Le Breton-Miller, 2005). Le Breton-Miller and Miller (2016) family businesses are considered responsible corporate citizens. This reinforces their commitment to sustainability, as they maintain a vital connection with their external stakeholders and a vested interest in preserving the environment (Niehm et al., 2008). The interest in the environment is caused as family businesses focus on creating a sustainable future for the firm (Berrone et al., 2013). Furthermore, it has been discovered that family businesses rely on their human, social, and financial capital to improve their sustainable contribution (Ferreira et al., 2021). According to Cui et al. (2018), family members serving as CEOs exhibit stronger corporate social responsibility performance than non-family CEOs. To mitigate rising agency costs, recommendations are to implement long-term incentives to align non-family CEOs with the values of the family business and foster sustainable investments. Additionally, P. Schmidt /Junior Management Science 9(2) (2024) 1485-15101490 Table 1: ESG Framework (Source: Li et al. (2021)) Dimension Factors Definition Environmental (E) •GHG emissions •Energy consumption and efficiency •Air pollutants Environmental matters that may have a positive or negative impact on the financial performance or solvency of an entity, sovereign, or individual. Social (S) •Workforce freedom of association •Child labor •Forced and compulsory labor •Workplace health and safety •Customer health and safety •Discrimination, diversity, and equal •Opportunity •Poverty and community impact •Supply chain management •Training and education •Customer privacy •Community impacts Social matters that may have a positive or negative impact on the financial performance or solvency of an entity, sovereign, or individual. Governance (G) •Codes of conduct and business principles •Accountability •Transparency and disclosure •Executive pay •Board diversity and structure •Bribery and corruption •Stakeholder engagement •Shareholder rights Governance matters that may have a positive or negative impact on the financial performance or solvency of an entity, sovereign, or individual. Anderson and Reeb (2004) highlight that family firms’ monitoring capabilities allow them to manage agency costs that arise from non-family CEOs effectively. The strong sense of ownership and commitment enables family businesses to enforce their vision for sustainability throughout the organisation. However, despite the positive associations between family businesses and sustainability found in academic research, there are potential drawbacks. One significant challenge is the potential conflict among family members within the company (De Vries, 1996). De Vries (1996) highlights that many owners can create distractions at the management level, leading to inadequate leadership and potentially harming stakeholders and sustainability-oriented business decisions (Eddleston & Kellermanns, 2007). The greater the ownership dispersion among family members, the more challenging it becomes to maintain a long-term orientation for the business. Some family members may prioritise short-term financial gains over long-term survival, leading to potential conflicts that hinder the organisation’s long-term vision and sustainable behaviour (Eddleston & Kellermanns, 2007). Furthermore, the socio-emotional wealth perspective, as highlighted by Berrone et al. (2010) and Le Breton-Miller and Miller (2016), can serve as a limiting factor for the sustainability performance of family businesses. Owners often perceive their family business as a source of social and emotional well-being for their families, leading to a hyperconservative approach and reluctance to invest in business renewal or growth because of the risk perspective (Patel & Chrisman, 2014). In support of this, Harith and Samujh (2020) found that owning families prioritise protecting their socio-emotional wealth by minimizing reliance on external capital providers. This reliance can impede investments and hinder the implementation of sustainable business practices because of pressure from external shareholders. It is worth noting that family businesses also have the potential to protect their socio-emotional wealth by demonstrating better sustainable performance compared to non-family counterparts, as argued by Berrone et al. (2010). This counters the aforementioned challenges associated with socio-emotional wealth that Harith and Samujh (2020) describe. 2.2.2. Sustainable Supply Chain Management For decades, globalization and the increasing complexity of supply chains have sparked a growing body of research into environmental and social issues within the supply chain (Seuring & Müller, 2008). Exploring the possibilities and advancements in SSCM to identify areas for improvement and derive conceptual frameworks have only been a few of the numerous topics of research (Brandenburg et al., 2014; Carter & Easton, 2011; Carter & Rogers, 2008; Seuring & Müller, 2008). Over the past decades, managerial decisionmaking has been marked by a notable shift towards integrating social and environmental considerations, particularly within supply chain management. This trend underscores an increasing recognition of sustainable practices and respon- P. Schmidt /Junior Management Science 9(2) (2024) 1485-1510 1491 sible business conduct in the contemporary company landscape (Brandenburg et al., 2014). Supply chain management, according to Seuring and Müller (2008), “(. . . ) is the management of material, information and capital flows as well as cooperation among companies along the supply chain while taking goals from all three dimensions of sustainable development into account, which are derived from customer and stakeholder requirements” (Seuring & Müller, 2008, p. 1700). To provide various perspectives from academic literature on SSCM, commonalities and divergent opinions across crucial publications have been identified. According to the analysis of 191 academic papers by Seuring and Müller (2008), a lack of clarity and focus on the social dimension of sustainability is evident. Only 20 papers adequately addressed social issues along the supply chain, while 140 articles emphasised environmental dimensions. Supporting those findings, Carter and Easton (2011) also demonstrated a predominant focus on ecological aspects of sustainability. On the contrary, they found a shift in recent years, evolving from focusing on environmental issues to a broader consideration, including social and economic factors. Supporting the implications, Brandenburg et al. (2014) state the existing models‘ main foci lie on a single sustainability aspect or a limited set of sustainability indicators, thus arguing for a lack of integration among them. Suggestions and implications are that while sustainability research has placed significant emphasis on the environmental aspect, there has been comparatively less attention regarding social dimensions in existing literature (Seuring & Müller, 2008). Furthermore, as per Carter and Rogers (2008) and Beske et al. (2014), an essential factor for success in the future will be the collaboration between the companies across the supply chain. As per Beske et al. (2014), partner development plays a critical role in ensuring the overall performance and efficiency of the supply chain. They argue that the weakest link in the supply chain can be strengthened through practical guidance and the development of partners. Focal companies can collaborate with suppliers to establish sustainable processes and implement effective governance structures. This can be accomplished by proactively encouraging suppliers to engage in environmental and social activities and assisting them with guidance and collaborative development. This approach fosters strong supplier relationships and creates strategic value for focal companies (Sanchez-Flores et al., 2020). Supporting that, findings have shown that the collaboration and close assessment of one’s supply chain positively influences adopting sustainable business practices (Macdonald, 2007; Matos & Hall, 2007). Without effective partnerships and comparative evaluation, adopting sustainable business practices can be severely impeded (Sancha et al., 2016; Soundararajan & Brown, 2016). SSCM’s impact on financial performance has been a highly debated topic in academic research. Although some opinions vary, authors generally view sustainable purchasing as having a positive economic impact (Carter et al., 2000; Govindan et al., 2020; Wolf, 2014). However, Feng et al. (2018) argue that SSCM only, in some cases, increases financial performance, depending on the practices and investments taken. It is important to note that those measures must be considered long-term investments, and businesses cannot expect a direct payoff. While Carter and Rogers (2008) suggest the focus of focal companies should be on environmental purchasing, Wang and Sarkis (2013) and Koberg and Longoni (2019) extend those findings by proposing to pay attention to social and governance practices as well. Overall, sustainable supply chain practices are widely recognized as positively impacting financial performance in the long term by enhancing firms’ resilience to crises and enabling them to operate effectively through challenging circumstances (Govindan et al., 2020). While prior studies have highlighted the distinctive sustainability approach of family businesses, scholars have emphasised the importance of analysing individual firms instead of relying on aggregated data to gain a thorough understanding (Habbershon & Williams, 1999). Based on the preceding literature review, it is proposed that family businesses demonstrate a well-developed sustainability focus in their procurement practices due to their strong relationships with external stakeholders. P1: Family businesses exhibit high sustainability levels attributed to their focus on long-term perspectives, commitment to communities and external stakeholders, and facilitating the adoption and implementation of sustainable practices. Academic research indicates that the close relationships typically maintained by family businesses with external stakeholders can result in a reluctance to change suppliers regarding unsustainable production practices. P2: Close relationships and the absence of external shareholder capital in family businesses do not hinder the implementation of sustainability practices in procurement and facilitate supplier switching if necessary. These relationships foster collaborative development processes and joint establishment of sustainability objectives, while family ownership strengthens the long-term emphasis on sustainability. 3. Methodology The subsequent section describes the methodology employed in this study to address the research questions. The process of conducting academic research to aggregate data for this study can be seen in Figure 1. 3.1. Research Context The research context of this study focuses on the food and beverages industry in Germany. Several factors support the research context of the German food and beverages industry. To begin with, the industry’s significant annual revenue of = C185.3 billion underscores its economic importance. With P. Schmidt /Junior Management Science 9(2) (2024) 1485-15101492 Figure 1: Research Approach (Source: Own Creation) a substantial workforce of 614,000 employees, the industry holds a crucial position in the German labour market. The sector has gained an exceptional global reputation for its stringent sourcing standards and policies guaranteeing excellent quality. The notable presence of numerous family businesses within the industry makes it a representative and influential component of the broader German family business landscape (BMWK, n.d.). Globalisation and recent crisis events, like the COVID-19 pandemic, have raised concerns regarding the sustainability of global supply chains. Given the food and beverages industry’s heavy reliance on agricultural inputs, ensuring sustainability within the sector becomes paramount (Beske et al., 2014). The industry is dynamic and driven by changing customer demands (Vlajic et al., 2012). Consumers are increasingly concerned about the products they consume, paying attention to factors such as product origin and social practices, including labour standards (Beske et al., 2014). The complexities of mass production and the industry’s dynamics necessitate agility and close collaboration within the supply chain, primarily due to the involvement of perishable food products (Beske et al., 2014; Matopoulos et al., 2007). The reliance of the food and beverages industry on agricultural sourcing further underscores the imperative for sustainability. Overall, the interconnectedness of supply chains within the food and beverages industry and the significant presence of family businesses make this industry a suitable research focus. 3.2. Research Design and Sample This study seeks to comprehensively understand the existing state of sustainability in procurement in German family businesses. Orienting on the case study approach made by Yin (1994), this paper uses a cross-case-analysis system to derive findings and gain insights. This method is well-suited as the aim is to examine the state of heterogeneity across the industry’s family businesses regarding sustainability (Yin, 1994). For each case study, the selected research methodology is the exploratory qualitative research approach (Ward et al., 2018). This approach is well-suited for this study as it allows for in-depth exploration and interpretation of the collected data. The nature of the research questions and the complexity of the subject matter make quantitative measures less applicable, as open questions and individual answers given by the interviewees are essential. Alongside developing a rating framework to assess the sustainability of the procurement process, this study aims to draw insights from the data, offering practical implications and recommendations to address the challenges family businesses face. An investigation was conducted on their official websites to identify prospective companies in the food and beverages industry that were potentially family-owned, supplemented by direct inquiries through telephone calls. The research specifically targeted indicators suggesting the businesses’ familial ownership structure. To encompass a diverse range of family businesses, those with a workforce of up to 3,000 employees were selected for inclusion in this study. In this research, family businesses are defined as aforementioned. Thus, family ownership had to be present, regardless of whether they were family managed. This criterion is in line with the existing literature, which suggests that family businesses are more adept at monitoring and reducing higher agency costs compared to non-family firms. Hence, the prevailing assumption is that non-family executives have a limited impact on sustainability, either negatively or positively (Anderson & Reeb, 2004). One of the family businesses in this study was no longer majority-owned by the family but still led and managed by the second-generation members who remained involved. In total, eight interviews were conducted to facilitate the research process. P. Schmidt /Junior Management Science 9(2) (2024) 1485-1510 1499 Table 8: Impact of Sustainability on Family Businesses (Source: Own Creation) Topic FB Sustainability: Cost or Benefit (Dis-) advantages of Relationship with Suppliers in regard to Sustainability in Family Businesses Financial Situation of Family Business in regard to Sustainable Investments Impact of Sustainability and Family Businesses on Agility and Resilience Impact of Family Ownership on Sustainability Other (Challenges) FB1 Long-term cost advantages Strong positive benefits derived from close supplier and community relationships High investments are needed, but no financial constraints due to less external capital Family ownership enhances organizational agility, while sustainability practices contribute to increased resilience during crisis situations Family ownership entails a high sense of responsibility driven by an intrinsic interest in the well-being of the community and future generations, exemplifying a commitment to caring for external stakeholders Risks of Sustainability are High costs FB2 Higher costs outweighing advantages Decades-long partnerships providing a cooperative advantage and not impeding change if necessary The robust capital structure and positive relationships with banks allow for investments without being hindered by financial limitations Family ownership enhances organizational agility sustainability enhances resilience The strong and enduring relationships between the firm and its external/internal stakeholders result in low fluctuation and foster mutual trust and cooperation High costs and bureaucratic burdens arise as a result of the increasing number of laws and regulations that have been implemented and are expected to be FB3 Brand image as a benefit and long-term cost advantages Close personal relationships, while potentially subjective, are mitigated through established practices, offering advantages in supplier relationships and collaborative sustainable development No financial constraints Flat hierarchies facilitate expedited agility, prioritizing factors beyond mere financial payoffs and sustainability leads to crisis preparedness Family businesses possess deep knowledge of the firm due to their longstanding history, allowing for close relationships with suppliers and facilitating sustainable practices while considering the welfare of external stakeholders Long-term perspective as an advantage (Continued) P. Schmidt /Junior Management Science 9(2) (2024) 1485-15101500 Table 8– continued Topic FB Sustainability: Cost or Benefit (Dis-) advantages of Relationship with Suppliers in regard to Sustainability in Family Businesses Financial Situation of Family Business in regard to Sustainable Investments Impact of Sustainability and Family Businesses on Agility and Resilience Impact of Family Ownership on Sustainability Other (Challenges) FB4 Chance to look and improve operations leading to potential improvements and benefits Long-term partnerships and collaborations foster mutual growth and are highly advantageous, highlighting the importance of close relationships and sustainable collaboration Capital is not a concern due to a healthy capital structure and cooperations with banks, eliminating any issues related to financial constraints Flat hierarchies enable higher agility and sustainability increases enhanced crisis resilience Family businesses have the ability to understand and empathize with the challenges faced by its suppliers, particularly smaller businesses and can provide financial support while maintaining a long-term perspective High costs and bureaucratic burdens arise as a result of the increasing number of laws and regulations that have been implemented and are expected to be FB5 Benefit from firm’s longstanding commitment to sustainability since inception Strong personal relationships facilitate the development of sustainable practices in the supply chain and enhance resilience during crises Financial independence provides a significant advantage for making decisions that prioritize nonmonetary goals Sustainability and close supplier relations enhance resilience in crisis situations With no obligation to external shareholders, family businesses have the autonomy to make decisions and investments that may not prioritize immediate financial gains but contribute to long-term sustainability Fast decision-making processes and the pursuit of non-monetary interests, even when financial gains are not evident, are inherent advantages of family businesses FB6 Enhanced financial performance through sustainability in the long run Good relationships have proven to be a source of resilience during challenging times No significant differences are observed in capital structures between family businesses and non-family businesses Sustainability and close supplier relations enhance resilience in crisis situations Long-term perspective is given in family businesses and that enhances sustainability High costs and bureaucratic burdens arise as a result of the increasing number of laws and regulations that have been implemented and are expected to be (Continued) P. Schmidt /Junior Management Science 9(2) (2024) 1485-1510 1501 Table 8– continued Topic FB Sustainability: Cost or Benefit (Dis-) advantages of Relationship with Suppliers in regard to Sustainability in Family Businesses Financial Situation of Family Business in regard to Sustainable Investments Impact of Sustainability and Family Businesses on Agility and Resilience Impact of Family Ownership on Sustainability Other (Challenges) FB7 High costs, but significant non-financial benefits and chances for pay-off in the long-term perspective Personal contact offers significant advantages in areas such as transparency, honesty, and collaborative consultation The company maintains a healthy capital structure and faces no issues in working alongside banks Sustainability and close supplier relations enhance resilience in crisis situations The long-term perspective ingrained in family businesses promotes sustainability and fosters independence in decision-making processes FB8 Predominance of high costs over benefits Close relationships are equally valuable in both non-family and family businesses No significant differences are observed in capital structures between family businesses and non-family businesses Due to the family ownership, a decreased employee turnover is at hand, giving an advantage to family businesses High costs and bureaucratic burdens arise as a result of the increasing number of laws and regulations that have been implemented and are expected to be P. Schmidt /Junior Management Science 9(2) (2024) 1485-15101502 tices, and fostering collective competencies. They also highlighted that due to stringent regulations and compliance rules in Germany, cooperation cannot be sustained if products fail to meet the required quality standards. However, FB3 acknowledged the potential issue of subjectivity by establishing personal connections. To ensure objectivity in supplier evaluation, they have implemented specific processes that involve multiple individuals in the assessment. As stated by the interviewee of FB3: "We have two people looking at the supplier’s evaluation to ensure objectivity". These measures aim to minimize subjective biases and enhance the accuracy of supplier evaluations. Furthermore, FB8 expressed a different viewpoint, stating that there were no discernible differences between family and non-family firms regarding their relationships with external stakeholders. Berrone et al. (2010) and Le Breton-Miller and Miller (2016) researched the high-quality relationships that family businesses tend to develop with internal and external stakeholders. They found that these mutually benefit both the suppliers and the firm, aligning with this study’s findings. Furthermore, the results of this study support the research by Carter and Rogers (2008) and Beske et al. (2014), highlighting the importance of collaboration and supply chain support in adopting sustainability practices and building competencies. The family businesses recognized the benefits of collaborative partnerships and the development of sustainable practices within the procurement process. Contradicting the findings of Donaldson and Walsh (2015), who suggest that such relationships may hinder agility and the firm’s willingness to change, most family businesses emphasised the positive impact of close relationships on their sustainability efforts. Overall, the findings indicate that personal relationships are advantageous regarding sustainability and economic aspects. Consistent with Beske et al. (2014), family businesses considered the support of their supply chain to be beneficial, as it fosters loyalty and resilience, particularly in crises. 4.2.3. Financial Impact of Sustainability None of the family businesses confirmed that financial constraints were imposed by their family ownership. FB2 highlighted the significance of maintaining a healthy capital structure, stated, "(...) one particular effort we made is that we have achieved a robust equity structure (...)", while FB4 added, “(...) we have a solid capital structure, which enables us to support suppliers financially or provide backing for their loans at banks". The interviewee from FB5 further reinforced these statements: "As a result of our financial independence, we have a great deal of freedom in decision-making and can implement sustainability strategies that we deem appropriate". In summary, the findings suggest that family businesses, with their financial control and absence of external shareholders, are not restricted by financial constraints when making sustainability investments in the procurement process. Many companies expressed that family ownership enhanced their access to capital and allowed them to prioritise their vision and values over purely financial considerations. The interviewee of FB5 stated the absence of external shareholders as advantageous in making investments that did not pay off financially but instead focused on social and environmental value creation. On the other hand, the interviewee from FB8 stated, that “(...) it is not important if the business is a family business or not, but what is important is the product and market the business operates in". A sentiment supported by the interviewee from FB6. The findings of this study contradict the existing literature, particularly the arguments put forth by Clauß et al. (2022) and other scholars regarding the limited financial resources and risk aversion of family businesses. None of the family businesses, except for FB8, reported having financial constraints. Academic literature suggests that focusing on safeguarding the company leads to reduced innovation and potential missed investment opportunities (Machek et al., 2019). The study findings unveil that none of the family businesses interviewed encountered financial limitations or inadequate capital for essential investments. Furthermore, FB2, FB4, FB5, and FB7 specifically emphasised the strength of their capital structure, enabling substantial investments without relying on external funding. These findings disrupt the prevailing understanding and underscore the necessity for additional research in this domain, expanding upon the current literature. In addition, the perspectives of Harith and Samujh (2020) and Patel and Chrisman (2014) regarding socialemotional wealth highlight conservative investment behaviour and aversion to risk. In contradiction to this view, the family businesses interviewed in this study diverged from such a perspective. They underscored that family ownership amplified their commitments to sustainable investments. Although they did not explicitly mention an inclination towards higher risk-taking, they expressed heightened liberty to invest in projects that might not yield financial returns. This finding reinforces that the socio-emotional wealth perspective underscores the non-financial aspects cherished by family businesses, culminating in enhanced sustainability performance. (Berrone et al., 2010). 4.2.4. Agility and Resilience in Family Businesses Agility and resilience are critical concepts in today’s business environment, as organisations need to make prompt decisions in challenging situations. Demonstrating resilience is particularly important within the supply chain to ensure uninterrupted production. An important finding from the interviews is that family businesses possess greater agility than large corporations. This perception is attributed to their family ownership structure, flat hierarchies, and the owning family’s active participation in the business’s daily operations. (FB1, FB2, FB3, FB4, FB5, FB7). The Interviewee of FB4 stated: "We have a cooperative with which we collaborate closely, and being a family business gives us the advantage of being more agile”. Moreover, it became apparent that sustainability acts as a catalyst for enhancing the resilience of family businesses, par- P. Schmidt /Junior Management Science 9(2) (2024) 1485-1510 1503 ticularly amidst recent disruptions to supply chains caused by various crises. The establishment of close and enduring partnerships with suppliers, along with the adoption of sustainable business practices, was found to be instrumental in bolstering this resilience. As the interviewee from FB2 articulated: "We have implemented a CO2recovery system, thereby eliminating the need to procure carbon dioxide for our production processes“. Corroborating this perspective, the interviewee from FB5 affirmed the operationalisation of the procurement, even during times of crisis, because "(...) the suppliers are loyal to us as we invest in the relationship“. Furthermore, attaining self-sufficiency in electricity can further strengthen resilience and diminish reliance on external sources, as evidenced by the practices of FB2 and FB7. Academic literature, as well as the findings of this study, demonstrate that sustainability practices contribute to enhancing resilience (Govindan et al., 2020). Family ownership and management also fostered agility through flat hierarchies and low agency costs, facilitating fast decision-making processes (FB1, FB2, FB3, FB4). 4.2.5. Impact of Family Ownership on Sustainability The influence of family ownership on sustainability can be a double-edged sword, as it depends on the vision of the owning family and the management of the business. Given the introduction of new laws in recent years and the resulting demands for commitment to sustainable practices of the public, there is no distinction between family and non-family firms, as these laws apply to all. Nonetheless, when the owning family embraces the traditional mindset of dedication, family ownership can be perceived as advantageous. The interviews unveiled that all respondents viewed family ownership as a strength for sustainability, as family businesses commonly demonstrate a profound commitment to their communities and the enduring sustainability of their enterprises. Family businesses often adopt a long-term outlook, prioritising generational objectives over short-term or medium-term gains. As emphasised by FB1: "Family businesses tend to have a strong sense of responsibility due to their close connection to their communities". Extending on that interviewee of FB2 mentioned: ”(. . . ) family businesses think sustainable because they do not focus on quarterly reports or executive terms, but instead on generations”, a sentiment echoed by FB6 and FB7. FB4 emphasised that most of their suppliers are smallor medium-sized family businesses, allowing for a deeper understanding of their challenges and the opportunity to develop sustainable measures collaboratively. Furthermore, FB5 illustrated the independence of family ownership enables the possibility of making investments that may not yield financial returns. The interviewee stated: “The moral aspect becomes crucial, particularly in the realm of social sustainability. I believe that family businesses have historically outperformed large corporations in this regard”. Le Breton-Miller and Miller (2016) have observed that family businesses exhibit a long-term orientation and prioritise sustainability over short-term gains, which aligns with the findings of this study. The interviewees expressed their commitment to ensuring the business’s longevity for future generations and their interest in environmental and social sustainability (Machek et al., 2019). Finally, this study further supports the findings of Habbershon and Williams (1999) regarding the strong commitment of family businesses to their communities and external stakeholders. 4.2.6. Challenges of Sustainability for Family Businesses During the interviews, several challenges were expressed by the interviewees, particularly regarding the high costs associated with the increasing need for sustainable investments (FB1, FB2, FB4, FB6, FB8). Additionally, FB2, FB4, FB6, and FB8 highlighted the escalating bureaucracy costs resulting from new laws and compliance regulations imposed by the government. As illustrated by the interviewee of FB2: "When I have to go through the same process for a pen, which is just a merchandising item, as for all other products in the procurement process, it becomes nothing but bureaucracy". Building on that, the interviewee of FB4 stated: "In our case, the heterogeneity of family businesses comes into play, as we don’t have a unified inventory management system, (...), thought should be given to the structure of different types of businesses, rather than only large corporates. This escalates the resources spent on bureaucratic processes". In this context, the interviewee emphasises that the issue lies not in the essence of sustainability itself but in the tendency of governmental policies to predominantly cater to corporations with a standardized structure, disregarding the distinct characteristics of family businesses. This challenge has the potential to lead to inefficient utilization of resources in the future, particularly in the upcoming decade, and may pose a substantial competitive disadvantage for family businesses. Appropriate measures must be implemented to address these challenges, either by the government or family businesses. These measures should bridge the gap between regulatory requirements and family businesses’ specific needs and capabilities, fostering a more favourable and supportive environment for sustainable practices. 4.3. Propositions and Framework The findings derived from the interviews conducted with family businesses provide evidence to support Proposition 1. It showed apparent that all the family businesses demonstrated a certain level of sustainability and showcased strengths in one or more pillars. Notably, all the interviewed family businesses emphasised the significance of maintaining high-quality relationships with suppliers and other external stakeholders, attributing this as an advantageous factor in implementing sustainable business practices. Furthermore, most family businesses underscored their long-term focus and unwavering commitment to their communities. This confirms the proposition that having a long-term vision facilitates sustainable investments, as it allows for a focus on non-immediate financial pay-offs. The study’s findings support Proposition 2, as all interviewed family businesses affirmed the advantages of close P. Schmidt /Junior Management Science 9(2) (2024) 1485-15101504 relationships with suppliers in adhering to and advancing sustainable business practices. While one family business expressed concerns about potential subjectivity in supplier selection, they had implemented business processes to mitigate this issue (FB3). It is noteworthy that all family businesses emphasised the strict compliance regulations in Germany, which compelled them to change suppliers if any quality or social issues arose. Their decision-making process was free from any form of personal favoritism. They actively sought solutions and collaboration with suppliers to maintain the business relationship, but if improvements were not feasible, they were forced to switch suppliers. Additionally, seven of eight family businesses acknowledged that family ownership heightened their focus on sustainability. It gives them the autonomy to pursue their visions without pressure from external shareholders. The strong connection of the owning family with external stakeholders, driven by motives beyond financial gain, further facilitated the implementation of sustainable business practices. To summarise, the findings of this study indicate that specific characteristics inherent to family businesses positively influence sustainability in the procurement process. These characteristics include the ownership structure, a long-term vision, agility, and a genuine interest in supporting communities and regions. Furthermore, the absence of external shareholders and the ability to access local banks’ capital based on a favourable brand image provide additional support for sustainability initiatives. Based on these findings, a framework has been developed to emphasise the significance of family business characteristics in enhancing sustainability in procurement (see Figure 3). Figure 3showcases the key findings, emphasising the potential of family businesses, to drive sustainability in procurement. The study uncovers that family businesses derive advantages from their ownership structure and streamlined decision-making processes, which are facilitated by their flat hierarchies. These advantageous characteristics of family businesses are further elaborated in Figure 3. These attributes, coupled with the preferred measures listed, can improve sustainability in procurement and the overall supply chain, consequently leading to a higher ESG rating. Furthermore, the study highlights the long-term advantages of enhanced sustainability, indirectly contributing to the competitive edge of family businesses. The following concise definitions offer a comprehensive overview of the indirect impact that enhanced sustainability can exert on family businesses, illustrating the potential for these measures to yield significant competitive-, as well as cost advantages. • Resource usage pertains to reducing resources utilized in production through implementing circular economy practices. This ultimately generates long-term cost advantages and has a positive environmental impact. • Sustainability bolsters resilience by ensuring an agile procurement and supply chain process. Strong supplier relationships enhance loyalty, enabling consistent delivery to family businesses even during shortages. • Effectively utilizing an improved brand image can serve as a powerful tool for employer branding and customer attraction. Furthermore, it has the potential to enhance long-term brand image, customer retention rates, and foster customer loyalty. • Investments can enhance supply chain independence by utilizing by-products and developing in-house capabilities to produce essential items like energy and gas. This reduces reliance on external sources and mitigates the impact of cost increases and crises. • Centralizing data management facilitates streamlined communication with entities such as the government and aids in compliance with regulations, as all pertinent data is readily accessible, leading to decreased resource intensity. This decreases the resource intensity of sustainability reporting. Integrating sustainable procurement practices can improve risk management by identifying and mitigating potential environmental, social, and governance risks. This highlights the overall advantage of sustainability in the procurement process. 5. Discussion In recent years, there has been a significant increase in academic literature focusing on sustainability, indicating a growing interest in these topics. However, the connection between sustainability and family businesses has been largely overlooked. This study aims to bridge that research gap by measuring privately held family businesses’ sustainability ratings on the procurement process. The following section summarises the study’s findings, outlines the implications, and finally presents the limitations of this study and future research avenues. 5.1. Summary of the Findings 5.1.1. Research Question 1 Based on the cross-case analysis, several noteworthy findings emerged, shedding light on sustainability in procurement within family businesses. The formulation of the first research question aimed to conduct a comparative analysis of sustainability, based on ESG principles, in the procurement process of family businesses. The ESG rating assessment revealed that all family businesses allocated resources to sustainable initiatives. This demonstrates their growing commitment for sustainable practices in the procurement process, highlighting the business sector’s role in this regard. Furthermore, the results indicated that family businesses firmly focused on sustainable investments and process implementations in the environmental pillar. However, there was a lag in the social pillar, particularly in areas related to transparency of the supply chain. A noteworthy observation is that family businesses that implemented sustainability measures years ago have P. Schmidt /Junior Management Science 9(2) (2024) 1485-1510 1505 Figure 3: Sustainability Process Model (Source: Own Creation) Table 9: Influence of Sustainability on Family Businesses (Source: Own Creation) Sustainability: Cost or Benefit (Dis-) advantages of Relationship with Suppliers in regard to Sustainability in Family Businesses Financial Situation of Family Business in regard to Sustainable Investments Impact of Sustainability and Family Businesses on Agility and Resilience Impact of Family Ownership on Sustainability Other (Challenges) reported financial benefits, indicating the potential return on these investments (see Figure 2). This highlights the significance of adopting a long-term perspective when considering and implementing sustainability initiatives. In summary, the rating assessment showed that most family businesses had made reasonable efforts in implementing sustainability practices based on ESG principles, particularly in the environmental pillar. 5.1.2. Research Question 2 Turning to the second research question, challenges and advantageous characteristics that influenced sustainability in family businesses were identified and described. By comparing these findings with existing academic literature, a comprehensive understanding of the topic was achieved. These characteristics and traits are presented in Table 9. Six of the eight family businesses interviewed positively viewed sustainability, acknowledging its long-term advantages. Nonetheless, FB2 and FB8 raised concerns about the potential cost implications of government regulations introduced in recent years. The immediate apprehension revolved around the bureaucratic burdens associated with extensive reporting obligations. While larger corporations might find it more manageable to meet these requirements, medium-sized businesses, including family enterprises, could encounter difficulties ensuring compliance. Throughout the study, it became clear that family businesses regarded their external stakeholder relationships as the most advantageous characteristic for enhancing sustainability in procurement. By maintaining strong and positive relationships with these stakeholders, family businesses could gain support, share knowledge and expertise, and collectively work towards achieving sustainability goals in the procurement process. It is important to note that while these relationships were personal, the businesses emphasised that they did not face any constraints in holding suppliers accountable for meeting quality standards and other requirements. In cases where deficiencies were identified, the existing laws and regulations did not allow for compromises. However, it was evident that the family businesses sought to provide support and opportunities for their suppliers to improve and address any shortcomings before considering alternative options. Regarding the financial situation of family businesses on sustainability, none reported challenges in accessing capital for sustainable investments. On the contrary, their favourable reputation and personal relationships with external stakeholders enabled them to access money more quickly, particularly from local banks (FB2). The agility of family businesses was attributed to their flat hierarchies and the active involvement of the owning family in the industry. Family businesses could make agile decisions without being constrained by extensive corporate policies, ensuring the smooth functioning of their procurement process (FB2). Sustainability initiatives also contribute to the resilience of family businesses by promoting P. Schmidt /Junior Management Science 9(2) (2024) 1485-15101506 self-sufficiency and reducing dependence on external suppliers. They enhance their operational continuity and adaptability through sustainable practices such as recycling byproducts from their production processes or developing inhouse competencies. This allows them to withstand crises better and maintain uninterrupted operations. By fostering independence and reducing reliance on external factors, family businesses strengthen their resilience and increase their ability to navigate challenging circumstances. Lastly, it was evident that family ownership positively influenced sustainability in the procurement process. All family businesses showed a genuine long-term commitment and interest in ensuring the company’s continuity for future generations. In contrast to large corporations with shorter executive terms driven by shareholder pressure and high agency costs, family businesses were not constrained by such factors. This allowed them to prioritise long-term sustainability and make significant investments in the procurement process. Additionally, family ownership directly impacted employee retention, fostering strong commitment. This, in turn, indirectly influenced the establishment of close and favourable connections and relationships with external stakeholders, ultimately enhancing sustainability efforts. Deriving from those findings, the framework presented above highlights specific characteristics of family businesses that serve as general competitive advantages compared to non-family firms (see Figure 3). If these characteristics are combined with specific measures to enhance sustainability in the procurement process, they contribute to improved financial returns, brand image and more. As depicted in Figure 3, this framework provides a comprehensive understanding of how family businesses can leverage their inherent strengths to drive sustainability and reap the associated benefits. 5.2. Implications 5.2.1. Implications for Academic Research The findings of this study make a valuable contribution to academic research in several ways. Firstly, they align with existing literature on the long-term benefits of sustainability measures in family businesses, corroborating the findings of Carter et al. (2000) and Feng et al. (2018). The study emphasises that the positive impacts of sustainability outweigh the associated costs, highlighting the importance of sustainable investments in driving long-term success. Secondly, the study sheds light on the significance of considering the social dimension within SSCM. As highlighted by Carter and Easton (2011) and Brandenburg et al. (2014) the focus of sustainability has predominantly been on a single sustainability dimension, with more attention given to the environmental aspect within SSCM in recent years. The findings align with previous observations and highlight the need for more attention to specific measures, such as transparency within the supply chain. Thirdly, the study contributes to understanding the advantages of family businesses concerning sustainability and agility (Seuring & Müller, 2008). Cooperation and the immediate support of focal companies within the supply chain are essential for improving sustainable procurement practices (Macdonald, 2007). The research confirms that close relationships with suppliers are perceived as catalysts for agility and resilience, contradicting the notion that they impede change or decrease agility. Adding to that, the findings by Govindan et al. (2020), which suggest that sustainability initiatives contribute to enhancing resilience, are supported by this study. All family businesses in the study confirmed this relationship, indicating that investments in sustainable business practices improve process efficiency and promote greater independence from suppliers. These insights bring nuance to the current body of literature and underscore the significance of professional partnership management and transparency in supply chain relationships, thus highlighting the distinctive advantage held by family businesses. Regarding financial limitations, the research by Clauß et al. (2022) and other scholars suggest that financial resources often constrain family businesses and tend to be riskaverse in decision-making. The cautious approach observed in family businesses, as mentioned by Berrone et al. (2010), stems from their strong desire to safeguard the long-term sustainability and success of the family business. However, this study challenges these findings as none of the interviewed family businesses reported financial constraints or a lack of capital for investments. Some family businesses highlighted their robust capital structure and healthy financial position, enabling them to make substantial investments in sustainability without relying on external capital (FB2, FB4, FB5, and FB7). These findings contradict previous research and provide an extension by demonstrating that family businesses’ low debt financing and healthy capital structure empower them to make significant financial investments regarding sustainability in procurement. 5.2.2. Implications for Practitioners While all family businesses have made some level of effort in implementing environmental sustainability measures in procurement, there is a noticeable gap in addressing the social dimension. The findings imply that future focus should prioritise enhancing social sustainability practices, as government regulations increasingly demand reporting in this area. While larger firms with a substantial workforce have been obligated to report thus far, smaller firms will also be impacted in the coming years. Family businesses already invested in sustainability and developed relevant competencies will be better positioned to navigate this transition smoothly. Furthermore, the findings of this study suggest that family businesses possess specific competitive advantages compared to non-family firms (see Figure 3). To effectively make use of these identified advantages, prohibit challenges, and utilize the framework, several actions can improve the ease of adoption: • Employing a full-time sustainability specialist facilitates staying informed about new regulations and laws, enabling the organisation to remain proactive and compliant. P. Schmidt /Junior Management Science 9(2) (2024) 1485-1510 1507 • Implementing a centralized data management system is crucial for effectively adhering to new regulations and laws introduced by governments. This ensures the efficient allocation of resources and facilitates better access to comprehensive company-wide data. • Conducting a thorough supply chain analysis and establishing collaborative relationships with suppliers helps identify areas for improvement and inefficiencies, thereby promoting innovation. • Maintaining a long-term vision and ensuring alignment between management and family ownership regarding goals and objectives helps mitigate agency costs and enhances sustainable decision-making. • Acknowledging the indirect benefits of sustainable measures can provide a strategic advantage (see Figure 3). • Building and nurturing strong collaborative relationships with external and internal stakeholders, fostering employee loyalty and positive relationships, facilitates continuous development and progress. Aligning the identified competencies with the inherent advantages of family businesses facilitates the implementation of sustainability measures (refer to Figure 3). Adapting processes to reduce resource intensity in reporting and ensuring thorough due diligence contribute to long-term benefits and indirect advantages (see Figure 3). In summary, while sustainability in procurement may entail initial costs and resource-intensive processes, family businesses can leverage their inherent advantages and apply the practical implications to implement the measures outlined in Figure 3. This strategic approach can lead to a sustainable competitive advantage in various domains over the long term and minimise family businesses’ challenges. 5.3. Limitations While this study has made valuable contributions to academic research, it is essential to acknowledge the limitations of this study. Firstly, the study focused specifically on family businesses in the food and beverages industry, which may limit the generalizability of the findings to firms in other sectors. The variations in products, sourcing regions, and other factors within the food and beverages industry can also introduce differences among family businesses that were not fully accounted for. Additionally, the study concentrated on German family businesses, and the findings may not directly translate to other regions or cultural contexts. The cultural, legal, and regulatory factors influencing sustainability practices vary across countries. Thus, the findings should be interpreted within the specific context. Secondly, the sample size of family businesses included in the analysis was relatively small, which could affect the representativeness of the findings. That could restrict the extent to which the results can be applied to a broader population (Queirós et al., 2017). However, the rating scale developed in this study can be broadly used and modified for further research and industry evaluation. Lastly, a limitation of the study is the potential presence of biases in the responses provided by the interviewed individuals. Since only one person per family business was interviewed, ensuring complete objectivity in the results is difficult. On the other hand, it is essential to acknowledge that all findings in this study were derived from detailed explanations and specific examples provided by the interviewees. These examples served as evidence to support the observations and statements made by the participants. While the data analysis conducted in this research provides valuable insights and keeps the identified factors, it is essential to consider the potential influence of other variables that have not been accounted for. 5.4. Avenues for Future Research This study focused on examining the sustainability of family businesses in the procurement department and developing a comparative framework for assessing their sustainability practices. This framework has the potential to be applied to other industries and allows for comparisons between family businesses and non-family firms in terms of sustainability in procurement. Future research should consider expanding the sample size to include family businesses from diverse geographic locations, enabling a more comprehensive understanding of sustainability practices in procurement. Moreover, employing qualitative research methods could provide deeper insights into family businesses’ motivations and decision-making processes concerning sustainability. This would benefit policymakers, researchers, and practitioners aiming to promote sustainable business practices. Another area of research that warrants investigation is the financial situation of family businesses. The qualitative findings of this study have uncovered intriguing results that challenge existing literature on the financial constraints experienced by family businesses. Further research in this area could yield valuable insights into the economic dynamics of family businesses and potentially offer additional evidence to support these findings. Sustainability has garnered increasing attention from scholars and researchers in recent years, and its connection to family businesses has been explored in previous studies. However, this study aimed to bridge a gap by developing an ESG rating framework specifically for privately held family businesses to compare their sustainability efforts in procurement. This framework can be adapted for future research in various business departments, industries, or non-family firms. The framework provides a structured approach to evaluate sustainability in private companies, allowing for consistent and standardized assessments across different industries. It can help researchers and evaluators identify strengths and weaknesses in sustainability performance and P. Schmidt /Junior Management Science 9(2) (2024) 1485-15101508 track progress over time. Moreover, it can assist in benchmarking and setting targets for sustainable practices. Finally, developing the rating scale and criteria provides a valuable contribution to future research, as it can be adapted and applied to various scenarios, industries, and sustainability topics beyond procurement. The scalability and adaptability enhance the usefulness of the rating scale in assessing sustainability efforts in different contexts. 6. Conclusion This study offers insights into the sustainability practices in their procurement processes by conducting qualitative cross-case analyses of eight family businesses. The findings reveal that most family businesses have implemented sustainable procurement measures, surpassing current legal obligations. However, there is room for improvement in addressing the social dimension of sustainability in light of new regulations. Furthermore, the study highlights the advantageous characteristics of family businesses in implementing sustainable practices, as outlined in Figure 3. In light of the current state of environmental pollution caused by companies, the global community, and the planet, it is imperative to prioritise comprehensive sustainability development. Although commendable efforts and investments have been made, continuous progress is essential to uphold and enhance sustainability, as the interviewee from FB5 highlighted: "We have now reached the status quo and want to maintain it, so we must continually strive to sustain and improve it ourselves“. Every business should strive for ongoing growth, investment, process implementation, and innovation to advance sustainability, as the demand will consistently rise to secure a livable future for future generations. Significant challenges lie ahead, particularly considering the potential impact of upcoming regulations in Germany and the European Union. 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